AI-Driven Small Business Growth and Labor Data Scrutiny - Episode Hero Image

AI-Driven Small Business Growth and Labor Data Scrutiny

Bloomberg Surveillance · · Listen to Original Episode →
Original Title: Single Best Idea with Tom Keene: Robert Kaplan & Anna Wong

TL;DR

  • Small and mid-cap companies are increasingly investing in AI and productivity to build size and scale, potentially reducing margins in the short term due to increased costs.
  • The Federal Reserve's adjustment of non-farm payroll data revisions indicates a potential overstatement, suggesting a negative outcome that requires careful economic assessment.
  • Companies in traditional, non-technology economies will prioritize productivity improvements as their primary strategy for forward progress and competitive advantage.
  • Active ETFs offer a strategy to potentially outperform benchmarks, contrasting with passive ETFs that aim only to match them, suggesting a choice in investment approach.
  • Businesses making significant purchases of $5,000 or more can earn 2.5% cashback, while other purchases yield 2%, providing a flexible cash flow for reinvestment.
  • Verizon Business offers LTE internet starting at $39 per month with unlimited data when paired with select mobile plans, addressing small business connectivity needs.

Deep Dive

The core argument centers on the evolving landscape of businesses and labor markets, particularly in the context of technological advancement and economic shifts. This analysis highlights how companies are adapting through efficiency gains and how labor market data, such as non-farm payrolls, requires careful interpretation due to potential overstatements, impacting economic policy decisions.

Robert Kaplan of Goldman Sachs observes a trend of "great American roll-up" not in large or mid-cap companies, but in the "in-between" sector--emerging, AI-powered small businesses that are growing. These companies, along with established large-scale firms, are increasingly focused on investing in efficiency, productivity, and technology. This investment, while crucial for long-term competitiveness, temporarily reduces margins, leading to belt-tightening measures in the short run. Traditional, non-technology-based economies will also prioritize productivity as their primary path forward.

Anna Wong of Bloomberg Economics underscores the importance of scrutinizing labor market data, specifically non-farm payrolls. She notes that revisions to these figures can significantly alter the perceived strength of the labor economy. For instance, a potential overstatement in monthly payroll numbers could lead to a negative adjustment when averaged over a three-month period. This highlights the sensitivity of economic policy, such as interest rate decisions by the Federal Reserve, to the accurate interpretation of employment data, especially given fluctuations and the upcoming release of double payroll reports. The implication is that economic policymakers must exercise caution and employ robust analytical methods to avoid misinterpreting employment signals, which could lead to suboptimal policy outcomes.

Action Items

  • Audit "in-between" companies: Analyze 3-5 emerging businesses for AI integration and scalability strategies (ref: Kaplan insights).
  • Measure labor data revisions: Track the magnitude of non-farm payroll revisions over 6 months to assess data accuracy (ref: Wong's analysis).
  • Evaluate investment strategy: For 3-5 small/mid-cap companies, assess AI adoption and efficiency investments impacting margins.
  • Track data fluctuation impact: Monitor month-to-month payroll report volatility and its effect on economic forecasts.

Related Episodes

Key Quotes

"Lots of still small emerging businesses powered by AI that can grow and will be very attractive and they'll get to a point where they kind of stabilize. You'll have lots of very big, huge scale companies that are dominant and you're going to have a lot in between and I guess we'd say in between has gotten a lot bigger."

Robert Kaplan of Goldman Sachs describes a market dynamic where small, AI-powered businesses will mature into large, dominant companies. Kaplan highlights that the "in-between" space, representing companies that are neither small startups nor massive corporations, is expanding significantly. This suggests a shifting landscape in business growth and market structure.

"I look to proactively and gamble carefully. So I don't want you to come in on individual security. But what does old industry do in their in-betweenness? Uh, build size and scale and make more investment in, uh, efficiency, productivity, technology. Uh, and so all that costs money and in the short run reduces margins."

Robert Kaplan explains his investment approach, emphasizing careful risk-taking rather than focusing on individual stocks. Kaplan suggests that established industries in the "in-between" market segment must invest in efficiency, productivity, and technology to grow. He notes that these investments, while necessary for long-term scale, can negatively impact short-term profit margins.

"The chairman with a bombshell, taking non-farm payrolls and marking them down as revisions are made. Who did I think of? Anna Wong at Bloomberg Economics, she has been path-breaking in America on adjusting unemployment to a more negative outcome."

The speaker notes a significant announcement from Chairman Powell regarding non-farm payroll data revisions. This announcement immediately brought to mind Anna Wong of Bloomberg Economics, who the speaker identifies as a leading expert in adjusting unemployment figures to reflect a more negative economic outcome. This highlights Wong's recognized expertise in labor market analysis.

"Powell mentioned that the three-month, uh, rolling average is currently about 40,000. So if there's six 60,000 overstatement that that, yes, you negative 20,000 and that's, I think that's the number. Uh, but on a month-to-month basis, there are of course a lot of fluctuations."

Anna Wong clarifies the implications of Chairman Powell's comments on non-farm payrolls. Wong explains that a potential overstatement of 60,000 in the three-month rolling average, which is currently around 40,000, could result in a negative figure of 20,000. Wong also cautions that month-to-month payroll data can exhibit significant fluctuations.

Resources

External Resources

Books

  • "Single Best Idea" - Mentioned as a publication from which insights are drawn.

Articles & Papers

  • "Bloomberg Surveillance Radio" - Mentioned as a source for conversations.

People

  • Robert Kaplan - Mentioned as vice chairman at Goldman Sachs and former president of the Dallas Fed.
  • Anna Wong - Mentioned as being from Bloomberg Economics.
  • Chairman Powell - Mentioned in relation to selective bombshells from the Fed meeting and non-farm payroll revisions.
  • Austin Goolsby - Mentioned for a dissent at the Fed meeting.
  • Lisa Bramots - Mentioned for driving conversation on a post-Fed show.
  • Alicia - Mentioned as sharing helpful tools and tips for cooking with MG.

Organizations & Institutions

  • Goldman Sachs - Mentioned as the employer of Robert Kaplan.
  • Dallas Fed - Mentioned as the former employer of Robert Kaplan.
  • HBS - Mentioned as where Robert Kaplan taught years ago.
  • JP Morgan Chase & Co. - Mentioned as the parent company of JP Morgan Asset Management.
  • JP Morgan Distribution Services, Inc. - Mentioned as issuing a communication and being a member of FINRA.
  • FINRA - Mentioned as an organization of which JP Morgan Distribution Services, Inc. is a member.
  • Chase - Mentioned in relation to the Ink Business Premier card and Chase for Business.
  • JP Morgan Chase Bank, N.A. - Mentioned as the issuer of cards and a member of FDIC.
  • FDIC - Mentioned as an organization of which JP Morgan Chase Bank, N.A. is a member.
  • Verizon - Mentioned in relation to Verizon Business internet plans.
  • CVS Caremark - Mentioned for its prescription savings plan.
  • Bloomberg Audio Studios - Mentioned as a producer of podcasts, radio, and news.
  • MG-United.com - Mentioned as a website featuring recipes and tips for managing MG symptoms.
  • Cisco Duo - Mentioned for its end-to-end phishing resistance.

Websites & Online Resources

  • jpmorgan.com/getactive - Mentioned as a website to learn more about active fixed income ETFs.
  • chase.com/businesscard - Mentioned as a place to learn more about the Ink Business Premier card.
  • cmk.co/stories - Mentioned as a website to learn how CVS Caremark helps members save.
  • duo.com - Mentioned as a website to learn more about Cisco Duo.

Other Resources

  • Active ETFs - Mentioned as aiming to beat the benchmark.
  • Passive ETFs - Mentioned as settling for the benchmark.
  • Non-farm payrolls - Mentioned as being marked down by Chairman Powell due to revisions.
  • AI - Mentioned as a power source for emerging businesses.
  • Repatha (evolocumab) - Mentioned as a medication that lowers LDL-C and heart attack risk when used with a statin.
  • Statin - Mentioned as a medication used in conjunction with Repatha.
  • Phishing resistance - Mentioned as a feature of Cisco Duo.
  • MG (Myasthenia Gravis) - Mentioned as a condition that can make cooking difficult.

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